Wednesday, March 13, 2013

Turning India into An Aerospace Power House to end Defence Import Scams

Radhakrishna Rao 
(Research Fellow, VIF)

Frequent eruption of scams and scandals surrounding India’s high profile defence acquisition programme, besides delivering a severe blow to the defence preparedness of the country, has brought into sharp focus the abysmal failure of the country, boasting one of the largest pools of scientific and technical manpower in the world, to develop a strong and versatile indigenous base for defence and aerospace production. Against this backdrop, the exposure of the massive kickback involved in the Rs.36,000-million deal for the acquisition of 12 VVIP helicopters from Agusta Westland, a wholly owned subsidiary of the Italian firm Finmeccanica, in which the Italian Government holds 30% stake, has sent shock waves through the defence setup and political establishment of the country. Indeed, while replying to the searching queries of the agitated members in the upper house of the Indian Parliament (Lok Sabha) Indian Defence Minister A.K. Antony was at pains to explain that India is forced to import defence hardware to meet the immediate operational requirements of the Indian defence forces and that the defence self reliance would be stepped with a greater vigour to end Indian dependence on imported hardware and equipment.

Of course, Indian Defence Minister A.K. Antony, known for his clean image and impeccable personal integrity, has asserted that no mercy will be shown to the “guilty and wrong doers”. Rightly and appropriately, Antony gave a philosophical edge to this unsavoury episode by his observation that “there was no end to human greed and still greedy people were working around the world”. But then the moral of the story that had gone sour is that India’s continued dependence on overseas vendors for meeting much of its defence requirements is at the root of “impropriety and corruption” associated with the defence procurement programme. Indeed, as one defence analyst has put it, boosting domestic defence and aerospace production base holds the key to end the lurid saga of kickbacks that have became an integral part of the defence import. Indeed, Antony has been making use of every platform to urge the state owned Defence Research and Development Organisation (DRDO) to acquire the latest technological expertise to reduce Indian dependence on foreign vendors for defence and aerospace products.

Yet another disclosure by Antony in Lok Sabha has the potential to generate a debate on the need to undertake costly upgrades of old aircraft platforms instead of going in for new platforms. The crux of Antony’s statement in Indian Parliament was that the cost of upgraded and modernized French origin Mirage-2000 aircraft in service with the Indian Air Force (IAF) could be close to its shelf price if India wished to buy these aircrafts afresh now. As it is the cost of upgrading one Mirage-2000 fighter works out to Rs.1950-million. India had signed a Rs.109, 470-milliion contract with France for upgrading the Mirage-2000 fleet way back in 2011. Incidentally, India had purchased 51 Mirage-2000 fighters way back in 2000 with per piece price of Rs.1, 300-million. The whole episode is a tribute to the poor home work done by the Indian Defence Ministry which should be more circumspect while committing public money for defence acquisition and up-gradation programmes, some of which are really questionable. It is high time the Indian Defence Ministry fine tunes its strategy for “getting right type of equipment at right time in right place.” Of course, inordinate delay and cost escalation continues to remain the scourge of the Indian defence procurement programme right from the word go.

Unfortunately, India has notched up the dubious distinction of being the world’s largest importer of defence equipment constituting about 10% of the global arms import between 2007 and 2011. In its 2005 report on defence acquisition, the Vijay Kelkar Committee quoted that a just 25% reduction on foreign dependence will lessen foreign exchange outgo by around Rs. 85-billion. For long, the Indian defence production sector has been dominated by the state controlled defence public sector undertakings (DPSUs) including HAL and BEL (Bharat Electronics Limited), the Ordnance Factory Board (OFB) and various laboratories forming part of Defence Research and Development Organisation (DRDO) with very peripheral role for the private sector industry in the exercise of producing hardware and equipment for the Indian defence forces.

Of course following the opening up of the defence and aerospace sector for private participation, a greater role for India’s privately held entities in the defence production sector is being envisaged. For instance, in a major departure from the conventional approach to defence production and acquisition, Indian Defence Ministry would soon issue a Request for Proposal (RFP) to a number of private Indian enterprises including Reliance, Tata, Larsen and Toubro and Bharat Forge, for the production of 56 aircraft in six-to eight tonne class. This aircraft, which will replace the vintage Avro planes in service with the Indian defence forces, will have a cruise speed of 800 kmph and a range of 1500-km to 2700- km. As envisaged now, it will have far superior features in comparison to Avro. However, in the backdrop of the fact that the Indian industry has a very poor track record in the design and development of flying machines, they will be required to join hands with an established global aircraft major that will do the necessary hand holding in producing this aircraft which IAF badly needs as a replacement to Avro. The idea of IAF that Avro replacement project should be handled by the Indian private industry rather than HAL augurs well for giving a boost to the Indian aerospace capability in all its manifestations.

And in what can considered a shot in the arm for India’s defence indigenization programme, an Indian version of the Swedish 155-mm Bofors Howitzer, whose acquisition by India in 1980s, had created a big political storm in the country, is to be produced by OFB. As it is, during 1999 short lived Kargil skirmish, Bofors gun had proved its mettle through the lethal fire power. The Indian Defence Ministry has placed an order worth Rs.12, 600-million with OFB for the procurement of 114 of the artillery guns being developed based on the designs obtained under the transfer of technology provision as part of the Bofors contract signed in 1986. This exercise would give India a required level of confidence and expertise to design and develop futuristic, advanced howitzers required by the Indian army.

During his inaugural address at the Aero India-2013 show held in Bangalore in February this year, Antony was quick to point out that the country should harness all options including public-private participation(PPP), joint ventures, licensed production and technology transfer to attain self reliance in all the conceivable areas of aerospace and defence production.” Zero import is not possible but maximum equipment should be indigenous. We will have a second look about our defence production as well as procurement policy so that we can speed up indigenisation on time,” was the observation of Antony. The defence procurement policy was revised as early as 2011.

Air Marshal S. Sukumar, Deputy Chief of the Air Staff, Indian Air Force (IAF) while addressing the seminar “Rising with collaborative Opportunities” held as part of Aero India-2013 stated that the need of the hour is to boost the capability levels of IAF through an increased indigenous efforts in the defence and aerospace sectors of the country. Giving details, he said many Indian companies have successfully developed critical components and subsystems for many of the end products required by IAF. They include helmet mounted displays and transmit and receive modules. Home grown fourth generation supersonic fighter aircraft Tejas LCA(Light Combat Aircraft) and Indo-Russian supersonic cruise missile BrahMos stand out as classic examples of India’s growing prowess in aerospace and defence sectors.

According to Sukumar, a highly skilled, cost effective manpower pool and vibrant software and IT industry could be the major drivers of the indigenisation. There is no denying the fact that India’s prowess in Information Technology (IT) and software services industry is today recognised across the world. The striking feature of India’s IT and software success story was that, to a large extent, it was scripted by a smart group of visionary private sector entrepreneurs keen on entering the global market by exploiting the “low cost advantage” offered by India. Apparently, the Government stepped in subsequently as a facilitator to give a boost to the IT and software sector through a series of incentives and concession even as the initiative continued to be in the hands of the private sector entrepreneurs. Of course, it must be said to the credit of Government of India that it played a crucial role in introducing and popularizing the concept of Special Economic Zone (SEZ) and exclusive Technology Parks to give a” fresh thrust ” to the “human intensive” IT and software enterprise and take it to the “next level of growth”. What is more, this development implied that the scope of SEZ and technology parks was extended to embrace other nationally important sectors including aerospace and automobile industry.

Needless to mention, India’s aerospace industry is much older than its IT and software sector. The origins of the Indian aeronautical enterprise goes back to early 1940s when the visionary industrialist Walchand Hirachand established Hindustan Aircraft Company in Bangalore with a view to produce military aircraft for the then Royal Air Force. But despite such an impressive legacy, India’s state owned defence enterprise Hindustan Aeronautics Limited (HAL) could not achieve the kind of stature that country’s much younger IT and software industry could attain. That the Indian aerospace products and services account for less than 1% of the rapidly expanding multibillion dollar global aerospace market is in itself a telling commentary on the failure of the country to build up a “vibrant and versatile” aerospace industry base and position India as major aerospace hub of global standing.

Why HAL could not blossom into an enterprise on par with Brazilian Embrarer is a question that needs immediate and serious consideration. On another front, if the Indian Space Research Organisation (ISRO) could pull off a space spectacular in the form of Chandrayaan-1, India’s first mission to moon, what prevented HAL, which is much older to ISRO, from positioning India as a high profile aerospace nerve-centre is an issue that needs to be deliberated upon with all the seriousness it deserves.

Not surprisingly then Antony has chided HAL from various platforms for the “the delay and time slippages” in realizing many of the nationally important programmes. What is more, during Aero India-2013 held at Bangalore in February this year, IAF Chief Air Chief Marshal N A K Browne had stressed the point that the Intermediate Jet Trainer (IJT) being developed by HAL which is behind schedule by at least one decade, had serious problems with its engines and as such cannot be accepted in the current configuration. Further, Browne also made the point that HAL’s planned basic trainer would cost more than Swiss made Pilatus, 75 of which have been purchased by IAF. This implies that HAL would need to be serious about sprucing up its act and positioning itself as a dynamic, forward looking, aerospace entity capable of providing a serious competition to global aerospace majors.

There is no denying the fact that the virtual monopoly of HAL on India’s aerospace and defence sectors-- till a decade back when Government opened up the defence production for private participation-- was partly responsible for the sense of “complacency and smugness” permeating the vitals of this leading aerospace enterprise in South Asia. Indeed, lack of competition meant a slow and steady growth of “lethargy and incompetence” with serious consequences for nurturing the “creative talent” that HAL had in abundance. Similarly, bureaucratic interference, stranglehold of the defence establishment obsessed more with meeting its requirements than developing a home grown technology base as well as the denial of freedom for HAL to move ahead with new and innovative projects meant “creative thinking and spirit of innovation ”could no longer be sustained. Indeed, the poor performance of HAL over the years was the result of a variety of factors beyond its control. Though Government of India is planning to restructure HAL by diluting its own stake in the company, whether this move will lift this Indian aeronautical giant from its current state of mediocrity no one is sure as yet.

Further, the route of licensed production that HAL chose with a view to honour the contracts from the Indian defence forces in a timely and economically viable fashion proved to be its own undoing. For such a step resulted in the stifling of “talent and expertise” required to build up a home-grown design, development and manufacturing capability for producing a range of aircraft, helicopters and advanced aerial vehicles. Moreover, the sustained neglect of civil aviation and narrow focus on defence aerospace points out to the serious blunder committed by HAL. For civil aviation and defence aerospace have many common and shared technological elements from which HAL would have derived a synergy to build up a total aerospace eco system to position itself as a “globally competitive aerospace enterprise”.

The ground reality is that India would need to look beyond HAL to give a “new dimension and wider reach” to its aerospace sector. It is here that the SEZs could be developed as a “force multiplier” for the national aerospace enterprise which would need a global reach to survive and thrive. Through its integrated and state of the art facilities and human expertise and domain skill spanning a wide range of areas critical to defence and aerospace production, an aerospace SEZ can position itself a full-fledged high tech eco system capable of meeting the diverse requirements of a variety of customers from across the world.

India’s first aerospace SEZ at Hattargi near Belgaum in Karnataka promoted by QuEST Global is designed to serve as a well equipped eco system offering complete “design to build” services, right from the concept design to the final, finished product meeting the stringent international quality standards. The strategic advantage of having players across the value chain in the same location would be the amount of time saved in moving parts from one location to another as well as the associated cost of logistics.

Significantly, locations such as Wichita in USA and Toulose in France matured into widely patronised aerospace hubs through the dynamics of “cluster phenomenon”. Aerospace focussed SEZs with an eco system built around a full-fledged supply chain cluster could easily meet the diverse needs of a customer at one location, thus helping him save time, money and energy required to source his requirements from widely dispersed geographical locations. But then instances of SEZs falling by wayside after the real estate interests taking un upper hand are dime a dozen.

As things stand now, not even the sky seems to be the limit for the Indian aerospace sector. But then for the Indian aerospace sector to emerge as a major and serious player on a global scale, the country would need to bring about paradigm shift in the way the entire aerospace sector in run. A beginning towards this long journey could be made by accelerating the process of setting up a large number of aerospace SEZs with a deep domain knowledge and precision manufacturing capability.

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